Financial structure – assets, debt and borrowing

Hamilton City Council would be financially better off after the reform. Transfer of operations, assets and debt would mean Council would become a smaller organisation. Around 180 staff would have the opportunity to transfer to the new organisation and all waters-related debt and income would transfer to the new entity.  

Hamilton has around $1.6 billion in waters-related assets. Not all of these assets would transfer to the new entity, but Government states any assets that are transferred would remain owned by the community via councils and their shareholding in the entities.   

Information supplied to government by Council as the reform developed indicates Hamilton has around 370 million of debt related to water services. Government has not yet confirmed how it will calculate the amount of waters debt which would transfer from Hamilton City Council to the new entity. Council receives around $71 million in waters revenue annually. Council can borrow money based on how much income it receives. In relation to Council’s overall financial position, debt for Three Waters is much higher than its percentage of income.

Passing this debt and income to a new entity would mean Council is financially better off immediately and would remove significant future costs from Council’s books. Council’s Long-term Plan has around $400 million in waters projects which are not yet funded. This figure is likely to increase significantly as Council responds to climate change and new information.  

In our 2021-51 infrastructure strategy we have forecast future costs of $336 million for another water treatment plant, $244 million for another wastewater treatment plant and more than $1.6 billion of investment over 20 years in stormwater improvements. Under the reform, managing future waters costs would be the responsibility of the new entity. 

There is uncertainty on the detailed financial impact on Council. Government data indicates transfer of debt following reform may give Council $256 million more borrowing capacity at the time of transfer. Government has also said it will provide $67 million in extra funding to Council to offset transition costs and for projects which improve Hamilton’s community wellbeing.  

The current forecast figures will change depending on Council’s actual financial position at 1 July 2024 and are subject to agreement with Government. Council is still working out what the full transition costs might be and is asking Government to commit to further funding if needed. 

The new entity could borrow more than individual councils. This means it could invest more and sooner. It could spread these costs over a longer period to reduce the impact on customers. 

Around 30 per cent of our rates income is allocated to water services. It is too early to predict council rates for Hamiltonians after reform, but the reform would remove water services costs, reducing rates. 

Under the reform, water users would pay water services costs to the new entities, instead of through their council rates. Each entity will decide the best way to recover these costs for their region. Charging could be on a capital value rating system (like Hamilton’s rates now), through a standardised charge, through metering as for most business customers now, through a combination of these and other mechanisms. Those decisions are yet to be made. 

In coming years Council will need to consider the needs of the community and other planned Government reforms to make sure it is best set up to deliver services to its community. 

Page reviewed: 17 Jun 2022 1:52pm